Here is the AFR article from todays paper... if the deal was on commercial terms, why did they cancel the deal?
ASIC takes a peek at Adultshop.com Sep 14 Peter Klinger
The Australian Stock Exchange referred disclosure and share trading concerns about Adultshop.com to the corporate regulator as the controversy surrounding the Perth-based erotic entertainment group deepened on Friday.
The referral to the Australian Securities and Investments Commission came as Adultshop's embattled board revealed it had terminated an online services agreement with Bree Maddox, the partner of managing director Malcolm Day. The agreement had netted Ms Maddox $1.6 million over the past 10 months.
Although Adultshop stressed that the webmaster arrangement with Ms Maddox, a former Penthouse Pet of the Year, was on commercial terms, the board pulled out of the deal, effective immediately, because of a "desire to promote high standards of corporate governance".
The standard of corporate governance at Adultshop, one of the highest-profile online companies in Australia, has been questioned repeatedly over the past 10 days after a dramatic downgrade of forecast profit and revelations that key drivers of the business had sold substantial parcels of shares but failed to meet market disclosure requirements.
Coinciding with these revelations, half of Adultshop's non-executive board members, including chairman Reg Gillard, resigned.
The ASX would not comment on its investigation, but a spokesman said it took disclosure inadequacies seriously.
An ASIC spokeswoman said the commission was clearly aware of the issues.
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Adultshop has already been forced to lodge monthly cash flow statements with the ASX. Those for July and August are due on Wednesday.
Mr Gillard, a well-known Perth company promoter and AFL players' agent, resigned from Adultshop's board on Thursday night, citing lack of time for a position he said required virtually an executive chairman's input.
Samantha Tough, a Woodside Petroleum executive, quit on Tuesday, citing work commitments.
That leaves incoming chairman Kim Heitman and Swiss fund manager Hans-Rudi Moser as the only two non-executive directors on the four-member Adultshop board.
Mr Heitman said on Friday that Mr Day had his and Mr Moser's full support and the search was on to fill the board vacancies.
Among board skills Adultshop was looking for, he said, were investor relations and e-commerce experience. Mr Heitman said he was comfortable with corporate governance standards at Adultshop and pointed to the early disclosure of the Maddox transaction, which had to be revealed in the annual report only this year.
"Unfortunately we do have a situation where governance and market sentiment don't go together," he said.
"When you have got a high standard of governance you have to be prepared to cop it when you give bad news to the market."
Under the arrangement with Ms Maddox, her company, B Mad Online, generated online traffic which it directed to Adultshop's websites. Her company was paid based on the level of member sign-ups from traffic introduced to Adultshop.
